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The advantages and disadvantages of Shared Ownership

You may be aware of different organisations offering Shared ownership schemes, but might not know whether the schemes will benefit you.

How does Shared Ownership work?

Shared ownership provides an avenue to home ownership and a first step on the property ladder. It is a government scheme which is aimed at people who don’t have enough to purchase a house outright. The house would be shared between you and the housing association, where you would have to pay a rent to the housing association on their share, and mortgage payments on your part.

Your initial share of the house can range between 10% and 75%. You then have the option to staircase, increasing your share of the property, by buying back from the housing association. Each share buy back must be a minimum of 1%.

Learn more about Shared Ownership and how it works.

Does everyone qualify for Shared Ownership?

The rules vary between England and Wales, and individual housing associations have their own assessment criteria. Nonetheless, these rules will broadly work as a guideline:

  • You are aged 18+
  • You salary is below £80,000. If the property is in London this rises to £90,000
  • You do not already own a property, unless it is already part of another shared ownership scheme
  • You are already renting a property from a housing association or the council
  • You don’t have the funds to buy a similar property on the market
  • You are not behind on your rent or mortgage payments
  • You must be able to demonstrate that you have enough to cover the rent and mortgage payments
  • You have a good credit score

Older people can qualify for the Older people’s Shared Ownership scheme if they are over 55 years old. They can again buy up to 75% of the property but there is no rent to pay on the share which is owned by the housing association.

Does Shared Ownership have advantages?

  • The deposit you need to pay is calculated on your share of the property, so under Shared ownership the deposit will be less. Nonetheless you will still need to pay your conveyancing fees, removals and survey costs which will be at normal price.
  • The rent you will pay to the housing association are usually less than a private rental. These are normally around 2.75% or the house price per year.
  • Shared ownership makes it easier to get a mortgage approval for lower salary workers, as the amount on the loan application will be reduced.
  • The Stamp Duty Land Tax can be paid as you staircase the property, rather than all being paid up front. You will only pay it based on your share.
  • You are entitled to sell the share in the property whenever you want.
  • You feel secure that you are investing in a home, which provides a better guarantee than renting privately.
  • If you staircase your share up to 100% you will own the property outright. Most agreements will allow this. After reaching 100% the housing association may give the option to buy the property freehold.
  • You might choose not to staircase if you don’t want to own more of the property and are happy to keep paying a small rent. This will help to protect you from fluctuations in the property market.
  • Usually the housing association will cover the Shared ownership property for 10 years for any maintenance or repairs that arise.

Does Shared ownership have disadvantages?

  • Shared ownership houses are without exception leasehold so, irrespective of your share in the property, ground rent and service charges may be owed and it will be your responsibility to pay it.
  • If the property strengthens in value but you only own a small share then you will not realise the full benefits of the increase.
  • You might struggle to find a lender who is prepared to lend on a Shared ownership property, yet there are an increasing number of mortgage companies offering that product.
  • The housing association may block any alterations to the property while they maintain a share.
  • There are additional costs associated with Staircasing. Each time you increase your share, in addition to organising the partial payment, you will also need to budget for legal fees, mortgage fees and surveys which may required. Purchasing a property in the traditional way means you only face these costs one time. Get a quote to check our prices to find a good deal on conveyancing costs.
  • When you come to staircase your share in the property, the value of the house will be based on a valuation by a third party. The longer you wait then if the market price rises then so will the amount you have to pay for subsequent shares.
  • Arranging to sell you property when it is Shared ownership is more complicated than a standard sale of property. If the housing association still owns a share then they must be offered first refusal of the property before you can offer it to anyone else. The housing association will have 8 weeks to try to sell the house. Even then you might not be able to sell the property because the freehold might still belong to the housing association.

Is it a good idea to do Shared Ownership?

Prior to choosing Shared ownership you must research other housing schemes offered by the government and thoroughly contemplate the pros and cons. If you know the details of Shared ownership then you can consider the deficiencies and decide whether you can overcome these and make it work for you.

  • Make sure you are familiar with the terms freehold and leasehold, as Shared ownership houses are leasehold. A leasehold property may or may not fit with your requirements.
  • There may be a waiting list for Shared ownership properties form the housing association, where certain applicants are given priority over others. For example, military personnel in England are prioritised over other groups.
  • You may be given a maximum amount of chances to staircase.
  • Sometimes the housing association will cap staircasing to 80% to discourage people from using the scheme to buy second homes. This is common in rural areas where housing stock is low.
  • There can be restrictions in the contract to stop you from staircasing the property within the first couple of years.
  • A lifetime ISA can be withdrawn to be used as the deposit on a Shared ownership transaction. But you will have to pay a withdrawal fee to the government if you wish to staircase using funds from a Lifetime ISA. Learn about Lifetime ISAs.

If you want to get on the housing ladder with a smaller mortgage and deposit then Shared Ownership can help where you have a reduced income. But make sure it is right for you by doing the groundwork and identifying the associated costs and pitfalls.

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